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Apple's Secret Weapon To Influence Industry Pricing
Hugh Pickens writes "Nick Wingfield writes in the NY Times that Apple's present pricing strategy is a big change from the 1990s, when consumers regarded Apple as a producer of overpriced tech baubles, unable to compete effectively with its Macintosh family of computers against the far cheaper Windows PCs. Now within the premium product categories where Apple is most at home, comparable devices often do no better than match or slightly undercut Apple's prices. 'They're not cheap, but I don't think they're viewed as high-priced anymore,' says Stewart Alsop. Winfield writes that Apple uses its growing manufacturing scale and logistics prowess to deliver Apple products at far more aggressive prices, which in turn gives it more power to influence pricing industrywide, and one of Apple's pricing secrets has been it's willingness to tap into its huge war chest — $82 billion in cash and marketable securities last quarter — to take big gambles by locking up supplies of parts for years."
This isn't exactly true for computers, but it sure is true for tablets. I can easily find better and more capable computers for lesser price than Macs, but it's an another issue with tablets. The current Android tablets either have bad hardware, bad design, are buggy or uninteresting and have less apps and games available. The good Android-tablets cost the same or even more than an iPad. At least with iPad I know to get consistent quality and a huge app store. And I don't mind paying a little for the apps and games, developers deserve support when they make good programs.
Hence, my current valuation for things is:
For desktop, Windows 7
For servers, CentOS Linux
For tablets, iPad
I didn't think tablets were that nice for a long time, but once I got mine I understand it now. It's really awesome when I'm laying down at the pool or hanging with my girlfriend in bed.
I've heard that the reason you see so few 9.5" "ipad size" tablet displays is that Apple bought up the entire stock. This is also why the iPad 2 had the same resolution as the ipad 1, and why the Android tablets are mostly stuck at 7". Can anyone confirm/deny this? Or explain that better. My knowledge of LCD manufacturing plants and capability is minimal, to say the least.
moox. for a new generation.
Windows 7? CentOS Linux?? I call bullshit on the "hanging with my girlfriend in bed" part. Never happened.
Samsung make most of the parts for Apple, they're hardly going to restrict supply to their own lines.
The whole tablet phenomenon is a fad. It was basically created via media hype, and the willingness of many of Apple's customers to buy just about anything with an Apple logo on it.
Despite millions upon millions being sold, very few people actually use tablets. Once the novelty wears off, it becomes obvious that they aren't practical at all. They take the worst of smart phones, without any of the benefits, and combine it with the worst of netbooks, without any of the benefits. Sure, the tablets look interesting, but after you buy one and try to use it you find that you're better off using your smart phone or your netbook. That's why despite so many being sold, it's extremely rare to see anyone actually using one.
The fact that there's basically no real demand for tablets is exactly why no other company besides Apple has been able to produce a successful competitor. There are many other tablets out there that are technically equivalent or superior to Apple's tablets, but nobody wants to use them, leading to situations like the one with HP where they liquidated their stock an unprofitable prices.
Contrast this to the uptake of useful devices like PCs, laptops, netbooks, PDAs and smart phones. People actually wanted to use these, so we quickly saw many viable devices from many vendors appear. Since the demand was authentic, these devices have had staying power. This just isn't the case with tablets. The tablet fad will likely be over by the summer of 2012, if not completely by early 2013.
as a non-native speaker, I find it painful to read "it's" instead of "its" in almost every /. post ...
"I love my job, but I hate talking to people like you" (Freddie Mercury)
People who view Apple's decisions as "big gambles" simply are not giving Apple the credit they deserve. Quite frankly, Apple hasn't gambled in quite a while - they are making very smart, very well thought out decisions and they are executing those decisions with skill and refinement. That isn't a gamble.
Regardless of what you think of Apple - love 'em or hate 'em - it's simply inaccurate to describe their moves as "big gambles". They are making bold business decisions.
Now, admittedly, that doesn't sound impressive but it actually is - too few companies are able to come up with a well thought out plan and to boldly follow it, sadly...
Apple isn't leveraging anything. They are competing and setting the price where appropriate for the market, and as high as they possibly can.
- In the mobile phone market where users switch brands as they please with disposable products that last maybe 1-2 years under contract they price quite aggressively. The iPhone really is a good deal. It also needs to be. With a large number of other smart phones on the market that also present excellent value the iPhone no longer has the unique benefits it did when it was first introduced. There is competition now.
- Tablets are still expensive. The iPad is not discounted aggressively, quite the opposite. They are making a fair bit of money on each device sold. Their competitors think that Apple has set the price for the device, but so far haven't come to the table with a competitor that is anywhere near as good, yet most are priced just as high. I eagerly await a day when another manufacturer releases an iPad competitor that's either similar to it with Android, or that is worse but priced accordingly. The new Galaxy tab may have been it but I won't know at this point.
Which only leaves laptops.
- Macbook Pro, 2.4GHz i5, 4GB RAM, 500GB HDD, Intel HD3000 graphics, 13" screen, $1399AU. ($200 more than the US even though our dollar is worth more).
- Dell Inspiron 15R, 2.4GHz i5, 4GB RAM, 640GB HDD, Nvidia Geforce GT252M, 15.6" screen $700AU
And I'm sorry but $240 for an upgrade of an additional 4GB of RAM? Sorry but those are prices I expected maybe 3 years ago.
Apple is still ludicrously overpriced in most of the products it sells.
'They're not cheap, but I don't think they're viewed as high-priced anymore,
with
$82 billion in cash and marketable securities
Truly you have to be an Appletard to feel sorry for these poor fellows who have to operate on razor thin margins to make all that money. Face it - Apple is a shining example of everything that is WRONG with modern American corporations. They COULD make their products in the US, but it would be slightly more expensive, so they outsourced manufacturing to Souzhou, China. All the US gets to see is minimum wage retail mall jobs, while Apple gets extremely cheap manufacturing labor, relaxes environmental controls and of course tax breaks. But people line up for days for these products when marginally incremental versions come out. Truly this is a sign of credit and access to money being way, way too easy.
Seven puppies were harmed during the making of this post.
Having fewer SKUs definitely helps, when one is talking leveraging prices over volumes, and not having a fragmented product line definitely pays its share. But it also helps Apple that most of the parts they use are not used by few other vendors, so that when they order something, the supply is theirs, and in a tight market, it cannot be easily allocated to anyone else. For starters, their CPUs have almost always - except for the x86 based Macs - been used solely by them. I dunno about the RAM, but they use(d) 8Mb of flash memory, unlike 2 or 4Mb that PC makers used, and I doubt that when Intel moved to the Firmware Hub model, Apple went w/ it (although that may be different right now w/ the Macs.) On tablets, the A4 or A5 is their own - they just need to book their capacity in the fabs, the flash is probably custom and not just off the shelf, and the other chipsets they use are more likely than not, ones that cater mainly to their architectural definitions.
As a result, it's not difficult for them to get allocation priority from several points in their supply chain, and given their pricing, it's probably not difficult to lock up fab and assembly capacity either. However, I think that locking up supplies for years is more likely a legal agreement than actually purchasing those parts. Generally, any company would be better off if it could use those resources to buy those parts when there is a surplus in the market, rather than when product is on allocation. But even w/ that, storage of such parts, and ensuring that they get moved, and don't just occupy warehouses, is important. Since Apple sells to end users, rather than to OEM purchasers (unlike say, Intel selling to Dell), it has a lot more flexibility in its sales than say, an Intel.
Incidentally, how well are Macs selling these days? Has Apple gained marketshare @ the expense of PCs?
What is a certainty is that Apple does volume buying at a scale nobody else can or is willing to match. It is a huge gamble for Apple. They got a lot of money but it is still a publicly traded company so if they screw up they can loose their value really quickly.
You said it yourself, the iPad2 is very conspicious in the its screen usage. Maybe they bought a little bit to many? Remember HP and the dump of its tablet? That wasn't just done to upset the market. Grinding up old stock is costly in itself. If say an iPad3 were to fail, how much obsolete stock would Apple have to get rid off?
All that has to happen is some chinese factory to open up and sell either better tech for the same price of the same tech for less and Apples strategy is shot.
Apple is also making a LOT of enemies. MS did the same once and those who thought that in business their is no room for hard feelings and rancor were ignoring moves by old MS rivals that didn't benefit the rivals as much as screw MS over.
And right now, with Apple fighting the other tablet makers that are also its suppliers Apple is feeding the hand it is scratching at the same time. Samsungs lawyers are paid by component purchases by Apple... how odd is that?
Apple is riding a wave of success but other companies have done it before them and crashed horribly. Will Apple have the same fate? Hard to say but seeing Apple giving up its old mainstays in the high end, they sure are playing a high risk game on a very narrow playing field. Samsung won't go bust if it can't make tablets and phones anymore, they got a lot of different products. Apple on the other hand would be dead in the water if something were to happen to their iLine of products. Unlikely... but then, did anyone really for see the fall of Amiga, Commodore? IBM PC's? Or indeed, Apple PC's? Once they were a major player and then dwindled. And it is unlikely Steve Jobs will return a 2nd time to save the company.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
Yes having little variation in the range results in economies for the manufacturer, but the "one size fits all" approach combined with Apple's resistance to letting the people who buy their stuff do any changes to it means that very few people are perfectly served by the model range . The more choices you have in choosing a device and what you run on it the more like is the result you end up with something that severs your needs, rather that the needs the manufacturer feels you should have.
N.B. this user is far too lazy to write a witty and intelligent sig.
Look at the report to the President on Ensuring American Leadership in Advanced Manufacturing. (http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-advanced-manufacturing-june2011.pdf)
Laptops, semiconductor memory device, flat panel displays, and lithium-ion batteries are all technologies that America has lost the capability to manufacture. Apple could not manufacture their products in the US anymore.
This business of locking up the supply of parts ought to pique the interest of antitrust regulators (if any still exist.)
I can get a laptop that can easily do whatever it's mac counterpart can plus it's at least half the price. If you are willing to make your own desktop you can get better performance at less than half the price.
Only recently have they started getting cheaper, but not by much. Those that are noticeably cheaper are also of noticeably worse quality.
I mean, they make like a billion dollars a month on iTunes... so it's not really accurate to focus on their computer business and act like they are somehow so much better than everyone else in they way they manufacture things. Sure Microsoft did an awful job with the Zune, so this makes Apple look like genuises... but Dell commands a far larger share of business workstation desktops and nobody on earth is out shopping for an Apple Server and every teenager in the world seems to own a playstation or an xbox. There are lots of categories where apple hasn't been successful/competitive AT ALL even though they have product to offer. Apple is at the crest of a wave but the iPod/iPhone/iPad is not going to be the must-have christmas item forever. Apple is a computer company that ended up designing and selling electronics as prestige fashion accessories because who on earth is going to buy their teenage daughter a walkman or make their wife walk town around texting on a blackberry anymore. Apple hit it out of the park with the iPad because everyone has been looking for a way for the last 30 years to sell more computers to women and women buy them.
if your life is such a big joke then why should I care?
What a crock.
I guess the New York Times is looking to boost its ad revenue going into the "important holiday shopping season". I understand how it works, you give Apple a free ad via this article and then Apple buys lots of ads in the next month, including the back page of the prestigious Sunday Magazine. It doesn't make it less nauseating though.
I understand why the New York Times would do it, what with the newspaper business being in hard times, but I don't understand why Slashdot would do it.
Here's a fun game: read the article and count the huge assumptions that are made, starting with this phrase, "within the premium product categories where Apple is most at home".
"Premium". I love that word. Is there any more over-used tag in 2011 consumer culture?
You are welcome on my lawn.
I routinely build high end PC's for about 1/2 the price of comparable Macs - and the machines I build have better components.
The most important reason iP(a/o)ds are reasonably priced is because everyone is force to use the apple store where apple earns tons of money. Android device manufacturers don't earn (much) from the Android store. Which is probably related to an other article I just read, that Android devices break down more often then apple or blackberry devices. Android device manufacturers have to cut more corners to earn money.
The iSuppli teardown, with parts and manufacturing (but not software), put the cost at ~$330 for the 32 GB iPad. The store price is $600. I get there needs to be a profit, but 100%? That's hardly aggressive pricing (at least with regards to benefiting the consumer).
Here's a leaked excerpt from the next edition of Walt Mossberg's Wall Street Journal column, where he reports on a recent interview with Tim Cook, Apple's newly ascended CEO:
I asked Cook what he thought his biggest challenges were. "Clearly," he replied, "China is our next big challenge. After the U.S. it's our second-largest market. But we're doing well there. We have 6 Apple Stores in China now."
And after China? "Our biggest challenge in the U.S. is the Slashdot market," he said without hesitation. "We haven't executed successfully in that market. But it's a big market, vital to our success, and we're going to aggressively pursue it. I've asked Phil (Phil Schiller, Apples Senior VP of Worldwide Product Marketing) to sit down with John Frazier and figure out a way to get our products onto the ThinkGeek web site."
Cook can't explain why the Slashdot crowd won't buy Apple products. "I don't understand it. OS X is based on Unix. We've been big contributors to the open source movement. But they persist in calling our customers 'Appletards' and 'fanbois.'"
Cook is normally a low-key guy, but the more he thought about all the lost Slashdot sales the more agitated he got. "I want the Slashdot market. I will have it. Once I have the Slashdotters, the world will be mine! MINE I TELL YOU!"
At this point I had to terminate the interview.
cl:ean for the next Than a fraction It's b3st to try
This whole posting has flamebait written all over it.
Why was this posted?
He might as well go on saying only Vi was included because of its excellent functionality over emacs or something else stupid to invoke a flame war. Cmd Taco would not allow that story to go through
http://saveie6.com/
MacPro prices are still outrageous. Then again, they are wonderful machines, although seriously in need of an update.
So Apple's secret weapon is to monopolize parts so its competitors can't afford them? Using its huge cash stack built on monopoly agreements with music and video publishers (in turn built on monopoly copyright rules) and monopoly telco lockins. It's monopoly money everywhere you look.
All of which "influences industry pricing" to keep everyone's products more expensive than they have to be, or would be if there were proper competition.
--
make install -not war
So their 'secret weapon' is that they think ahead, price aggressively in shrewdly chosen market segments, and take carefully measured strategic risks with their resources?
Does it strike anyone as ironic that it's so unusual for a company to act the way a capitalist company is *supposed* to act that it's called a 'secret weapon'?
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Apple fanbois actually claimed this even in the 1990s, hell even in the 1980s.. the conversation would go like this.
"Apples are overpriced"
"Oh, but when you consider something with *comparable features*, it's not"
"Yes it is, here's a machine with the same features and it's still under half the cost."
".....umm, it can't be comparable though."
"Oh yes, and in fact the processor's a little faster and it has more RAM."
"......"
The corrolary of this was to cherrypick from the few most expensive PCs on the market, but ignore the extras it had -- like maybe compare some Sony Vaio (Sonys are also overpriced.. and ignoring that it had say a TV in and out, more RAM, bigger hard drive, faster CPU, and a much faster video card) and ignoring the dozens of other models that equalled outspecced the Mac for less *from the same vendor*. Or (back in the day) compare the Mac desktop to something like a Compaq Netserver, ignoring the Netserver had a bunch of costly design features like redundant power supplies.
Same thing here -- if you consider some Apple thing to a "premium product", that means "premium pricing", when you can get a comparable music player or tablet for under half the cost (and obviously a good Ubuntu notebook -- don't bother with Windows -- is not $1,000-$2,000 like the Apples.)
"to take big gambles by locking up supplies of parts for years."
You can tell that they lock up supplies for years. It's visible in the years behind every other normal PC that Macs are.
Also known as 'once'.
Apple's strategy with hardware reminds me a lot of Microsoft's mid-90s strategy with software. The biggest difference being the lack of anyone clamoring for an anti-trust investigation of Apple. I think it's a mistake on Apples part to try to gain a monopoly in this fashion; Apple's becoming an elephant instead of an innovator trying to maintain the top spot with litigation and control of parts rather than innovation. Maybe without Steve Jobs this is their safest bet, but it's certainly not a very inspiring (or 'cool') one and it's going to hurt their brand image. 2 years ago when their competition was woefully behind this article might have seemed daunting news for the rest of the industry.
I think if Apple wants to tie up all the hardware that can be used to make identical products to their own, that's awesome, because it's going to prevent exact knock-offs and force everyone else to continue to innovate. 2 years ago I bought an iPhone because it was by far the best smart phone on the market, but this year after watching the lackluster unveil of their latest version, I went out and bought a Motorola. The optics in the camera of my A2 might be a bit behind the new iPhone, but the rest of the hardware suits me a lot better and so does the software. Who cares if Apple has tied up all the 3.5" retina displays, I'm a man with man-hands, and I will never go back to that form factor. Apple's had some great designs, but they're not the singular pinnacle of ultimate design perfection.
I suspect that Apple's attempt to control the hardware markets is going to fail, just like their attempt to trademark "app store" and they'll soon be back to their tiny market share, only this time Google's Android will be the Windows 95. With no Steve Jobs to pick them back up... maybe the whole company is old-news.
Actually, the overuse of acronyms is more problematic. For example...
Let's say we were discussing a program written in Ada (the programming language) that somehow solves some compliance issue of the ADA (American Disability act). It's easy to see why the use of acronyms can be confusing. The solution is simple, the first time an unusual acronym is used, the users of slashdot should put the acronyms meaning in parenthesis immediately following.
Another irritation is the use of texting abbreviations. There is no message size limit so their use should be avoided. The use of texting abbreviations is slowly diminishing on this website and I think we should try to stamp out their use entirely.
Now that I am off my soapbox, you can return to what you were doing before,
Apple would be far better off without a bite taken out of it..
Are you guys just becoming aware of how the real world works or something? You're discovering what Walmart has been doing for 40 years? And Sears before them? And I'm sure thousands of other businesses that I don't remember or wasn't around for. How many times has this been discussed about iTunes alone? Are you guys really unaware that the same thing happens with hardware as well?
Slashdot used to be news for nerds, now it seems more like semi-nerd news for the masses.
Persistent Volume manager for Kubernetes - https://github.com/dwimsey/openshift-pvmanager
you are stretching it.
Apple priced their stuff and fixed it until the new model, pretty much same as they do now. When the new models came out it would be close to a comparable PC but a little bit more; not a lot more. Sometimes it was even cheaper but that was a rare case situation. Towards the middle to end of the product cycle (about 1 year) the comparison would make the mac more expensive as the comparable PCs which would have come down in price or had new models come out. The way Apple handled its product cycles vs the whole industry and them being out of sync didn't and still doesn't lend itself to a fully fair comparison.. These are computers and as you should know the prices change FAST.
Getting a comparable PC was also problem since the specs didn't match up many times - stuff like SCSI was more expensive to have. Less mass produced popular stuff didn't help. Also, there were quality issues-- a higher end mac would easily outlast comparable PCs at the office. The power supplies were just better while the PC ones were often cheap even on better systems. Also had fewer issues with SCSI drives than IDE ones overall. Plenty of studies back in the day rated the macs as lasting longer.
the Mhz thing was a problem a while back but for MOST the mac's lifetime the Mhz thing was a myth. Intel has a long history promoting Mhz for marketing and it wasn't meaningful. they'd cut corners to get a higher number than the others but it wouldn't perform better; especially for the extra money. The extreme point was Pentium 3 vs 4 where they even had lawsuits because the old chip was faster at 500mhz less speed! AMD had to sell in intel mhz units because it was so bad. Now intel is stuck and transitioned from their own mythology. we've been around 2gz for almost a decade.
SOMETIMES apple would charge way too much for the system; other times, they would be a fair price and known quality. Right now, I'd say their computers are overpriced. The 1st Intel tower was a great deal when I bought it; its not so great today but not too horrible. the iPhone iPod thing might be a little high but I don't think its much; the iPad right now has everybody easily beat.
if Apple would sell some lesser hardware at a lower price they could probably hurt the cheaper markets too. They tend to aim for the newest CPU etc. when a 1 year old chip would be way cheaper. They dominated with the iPod by selling weaker iPods against the cheaper players.
Meanwhile the people who actually make the Apple toys are throwing themselves off the factory roof in despair.
And right now, with Apple fighting the other tablet makers that are also its suppliers Apple is feeding the hand it is scratching at the same time.
The only possible explanation for that statement is that it was posted by Iris.
Grats on skewing reality by anecdotal evidence
Now let's get back to reality.
Apple "all in one' vs Dell "all in one":
http://store.apple.com/us/browse/home/shop_mac/family/imac/select
http://www.dell.com/content/topics/segtopic.aspx/inspiron-one
23" Dell: i5 @ 2.5Ghz, 6Gb RAM, 1Tb HDD, Intel HD Graphics - 949.99$
21.5" Apple: i5 @ 2.5Ghz, 4Gb RAM, 500Gb HDD, AMD 6750M Graphics - 1199$
And so on for most configurations.
That's pretty much the only way to get away with this "oh, Apple products are not more expensive" myth, by playing "oh, but it's not identical". No it's not. And you can buy "all in one" dell for 599$, when Apple's start at 1199$.
Cash and Short Term Investments were $25 Billion as of 9-24-2011 balance sheet.
http://www.google.com/finance?q=NASDAQ:AAPL&fstype=ii
... the pricing strategy of Apple has always been the same. Ever since I started following them back in 1985.
Stupid people just doesn't seem to 'get it'. And unenlightened journalists write stupid articles.
The principle is simple: with most IT products the price constantly drops, or upgrades are provided at the same costs. This is for all components as such. With Apple - even when they were doing their own manufacturing - they approach it 'differently':
At product launch the margin is minimal, because it's only then that the 'stupid journalists (tm)' are writing articles and making comparisations. It's very competitive then, and if you're interested in buying Apple products, you buy them best at that time. Because the price will stick at that price point. Basically almost forever. So it seems. For a year or more, it will remain at this price level, making by the end of that period, an enormous margin to Apple as the market prices of components have been falling constantly.
At the end of the period, there is typically a product upgrade, without cosmetic changes, which makes the product a little bit attractive again, but the best 'deal' where Apple makes the least margin is only there when there is a redesign of the product. As Apple knows that it's only then that the 'stupid journalists' will write comparison articles which will be around for the next year.
It's smart, yes. But it has nothing to do with stockpiling inventory - as Apple DOES NOT DO THAT. That was in fact Tim Cooks first big improvement at Apple, to move to an almost inventory-less company.
Apple makes computers from more expensive components because they are a product company and they don't compromise on design in order to hit the lower price points. Some people get this, and they buy macs and don't see the as overpriced. Other people think a fancy 27" monitor is superfluous and unnecessary. That's why you see them compare the price of a PC with a 24" el-cheapo monitor to an iMac with a much nicer 27" display.
Apple products are for people who are value conscious. Cost conscious penny-pinchers need not concern themselves with Apple products. They will always be able to find another "comparable" product that costs less and is good enough.